3 Ways The Reverse Mortgage Industry Can Achieve New Growth

From a volume standpoint, the reverse mortgage industry has seen a decline in recent months and years.

The number of reverse mortgages closed during the most recent month has receded substantially to 4,243 loans endorsed, with a year-over year decline of 8.4% of the first four months of the year, according to industry data aggregator Reverse Market Insight.

While most do not expect volume to match its pre-recession highs, in comparisons over time periods as recently as 2014, annual volume is falling.

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“We have seen quite an impact from financial assessment,” said Reverse Market Insight President and Founder John Lunde during the National Reverse Mortgage Lenders Association conference in Huntington Beach, Calif. this week. “These are good things for borrowers… but thinking about the full effect of product changes, principal limit reductions and quite a few lender exits, as we tally these it starts to look a little bit daunting.”

There are several causes of the stagnation in the market currently, Lunde suggests, but they are areas where lenders and originators can work to achieve new growth.

1. New entrants 

In past years, the lender landscape was supported by large, national companies such as Financial Freedom and Wells Fargo. Today, the landscape is more specialized, but new entrants are not making up for the losses experienced when large lenders exited the business in recent years.

“The companies that entered later have contributed less volume,” Lunde said. “We need to focus on brining companies in; we need distribution and more support to grow the industry.”

2. Growth of the HECM for Purchase market

“We need to keep working with Realtors and other folks involved in that process to bring more of those transactions into the reverse mortgage world,” Lunde said.

The reverse mortgage for purchase product has seen success in specific markets, including several zip codes in close proximity to one another in Utah. There, builders and others have embraced the reverse mortgage program.

“It shows what can be done when you do get critical acceptance by some of the key folks in the process,” Lunde said.

3. Financial planning awareness

Fewer than 20% of reverse mortgages today draw less than 30% of their proceeds upfront, according to data presented by RMI. Low utilization adjustable rate reverse mortgages will help achieve market growth Lunde said.

“These are borrowers who are getting the reverse mortgage today not because they need all the money today,” he said. “It’s planning ahead today and thinking about what’s coming down the road in the next five to 10 or 15 years and thinking about how to spend down assets in a way that is sustainable.”

Research is helping this effort, with several financial planning thought leaders having conducted recent studies to show the ways in which reverse mortgages can help as part of a comprehensive retirement strategy.

“This enables financial planning strategies,” Lunde said.

The industry is not likely to rebound to its pre-recession volume levels in the near term, but targeting these growth areas can help achieve slow and measured growth as seen in some markets around the country.

“We’re planting seeds,” Lunde said. “We’re not going to harvest them today, but look at places where there are pockets of potential that are already generating loans.

Written by Elizabeth Ecker

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  • The article is a good one and John Lunde brings up very good points that we must all take seriously.

    However, all of us must take all that has changed and accept it as well as embrace it! We can’t dwell on the negative effects of FA but rather look at the positive effects, which I feel out weigh the negative!

    Yes, we have faced principal limit reductions and quite a few lender exits, as John Lunde points out, it has been a bit daunting!

    We can and should still look at the Glass of water being half full and go out there and take advantage of all the new opportunities we have before us.

    We need to look at the potential senior homeowners turning age 62 daily, which by the way is the greatest amount we have ever seen.

    We need to take a look at the amount of equity seniors over 62 years of age have in their homes today, which by the way, that is more than we have ever seen as well!

    We need to also look at the new found credibility the HECM loan has today because of FA and the NBS ruling! We can also look at the new markets that have opened to us in the financial planning field. Let us also not forget small community banks and credit unions.

    I could go on and on as far as the opportunities we have and the tools available at our disposal to pick up business but I think everyone gets my point!

    John Lunde is right about a lot of what he said and I support heavily what he said about the H4P program, it is untapped, we need to go after it like we never have before.

    In ending, I have to say that I see many more than just 3 Ways The Reverse Mortgage Industry Can Achieve New Growth. It is out there, all we have to do is go after it fast and furious!

    John A. Smaldone
    http://www.hanover-financial.com

  • Hmmmmmmm. These fixes are a bit over rated to be much help. HECMs for purchase are too complicated to get positive anytime soon. With news about RM companies taking big losses, don’t expect any substantial new RM players to emerge — and financial planners have too many problems of their own with the stock market to start referring to this industry. They’ll be a few, but not many.

    There’s a couple more things to consider that would help the RM industry mature in the near future.

    The forward mortgage industry needs to either entertain this initiative on their own or be regulated like the RM industry with the requirement to loan less than 50% of home equity on those after a certain age, opening the door to a HECM lots earlier in the process as “part of the deal” from the beginning and not the last ditch solution we inherit now. Lots of folks don’t qualify for lack of equity because of their current forward loan requiring payments from dwindling financial resources.

    Also, CFPB (Government) needs to stop scaring the pants off of elder prospects by continuing to disrespect the role of RM loan originators who contribute to the senior retirement shortfalls by blowing their whistles on problems that live mostly in their own imaginations.

    I recognize these ideas are anathema for a lot of folks in this industry and will not bring positive feedback anytime soon, but this industry will continue to dwindle if there isn’t a positive thrust to offset the mostly false narritive stuff people hear about reverse mortgage HECMs now.

    Even the positive stories we are getting from the press now leave the reader with some kind of downside to jade the minds of those who need a HECM to take the financial pressure off of staying in their home place.

    With all of that going on, it’s kind of a miracle we get people entering the HECM solution at all.

    • Warren,

      You do bring an unusual view of our industry into your comments. Many of which seem tied to a political outlook.

      For example, you write: “Also, CFPB (Government) needs to stop scaring the pants off of elder prospects by continuing to disrespect the role of RM loan originators who contribute to the senior retirement shortfalls by blowing their whistles on problems that live mostly in their own imaginations.”

      Please give an example where the CFPB is specifically disrespecting the role of RM originators.

      What are the consequences to the forward industry if they do not adopt the 50% down payment requirement you want instituted? In other words, what are they doing wrong by not taking up your so called “initiative?” Let’s face it, H4P is currently not all that objectively competitive!

      • Hmmmmmmm. Let’s see — you don’t like these ideas — what are yours? Step right up. Be creative. It’s time, don’t you think?

      • Warren,

        This is your comeback?

        The opening paragraph of your first comment was an excellent response to the blog. You should have stopped there instead you go off on a tangent with a forward mortgage initiative and a short rant on the CFPB.

        If you can point to forward mortgagees who realistically might adopt your initiative,that would be one thing but it is so unlikely any such mortgagee would, there is NO need to address the initiative. Your alternative to the initiative is to “…be regulated like the RM industry with the requirement to loan less than 50% of home equity on those after a certain age….”

        Do you understand RMs? Lenders are free to offer any ratio they want for a RM unless they want to be insured by FHA. I know of no RM that has a “50% of home equity” ratio. The percentage is a percentage of the appraised value of the home, not home equity. Such a rookie mistake needs the following example. You are saying that when the value of the home is $200,000 and the debt against the home is $198,000, since the home equity on this home is $2,000 you are saying that the RM industry currently offers a $1,000 (and less) loan in such situations. Perhaps you can point to a lender that offers that loan.

        What your opening paragraph in your first paragraph failed to do was address how to fix the new HECM. Why not 1) make the principal limit factors 105% of what they are now, increase the first year disbursements limitation to 70%, and reduce the number of months used in the LESA computation by 40%. So there there is no misunderstanding about the 105% of current principal limit factors, say the current rate is 0.632, my proposal is to make that 0.664.

        We do not need to be as much creative as realistic and we need to be less confrontational towards HUD and the CFPB.

  • I have looked at the other comments and i must agree to a point with RMAdvisor about wstrycker’s comment.

    One point of wstrycker’s comment I did not care for was the last sentence, which was,

    “With all of that going on, it’s kind of a miracle we get people entering the HECM solution at all”

    I can interpret that a couple of ways, the one way I did take it was in a very negative way!

    I stand by what I said in my comment BELOW, which I am about to repeat it, if anything we need positive solutions among us, not negative!

    – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – –

    The article is a good one and John Lunde brings up very good points that we must all take seriously.

    However, all of us must take all that has changed and accept it as well as embrace it! We can’t dwell on the negative effects of FA but rather look at the positive effects, which I feel out weigh the negative!

    Yes, we have faced principal limit reductions and quite a few lender exits, as John Lunde points out, it has been a bit daunting!

    We can and should still look at the Glass of water being half full and go out there and take advantage of all the new opportunities we have before us.

    We need to look at the potential senior homeowners turning age 62 daily, which by the way is the greatest amount we have ever seen.

    We need to take a look at the amount of equity seniors over 62 years of age have in their homes today, which by the way, that is more than we have ever seen as well!

    We need to also look at the new found credibility the HECM loan has today because of FA and the NBS ruling! We can also look at the new markets that have opened to us in the financial planning field. Let us also not forget small community banks and credit unions.

    I could go on and on as far as the opportunities we have and the tools available at our disposal to pick up business but I think everyone gets my point!

    John Lunde is right about a lot of what he said and I support heavily what he said about the H4P program, it is untapped, we need to go after it like we never have before.

    In ending, I have to say that I see many more than just 3 Ways The Reverse Mortgage Industry Can Achieve New Growth. It is out there, all we have to do is go after it fast and furious!

    John A. Smaldone
    http://www.hanover-financial.com

    .

  • A great article reflecting the thoughts of the industry’s best mind on endorsement analysis. Even though this comment is highly critical of those thoughts, what John is quoted as saying shows a level of desperation to finding ways to grow and resignation after years of over optimism to a far more realistic position on our current trend in endorsement volume.

    Write off HECMs for Purchase as anything other than minuscule growth for at least a decade. Since fiscal 2010 (the lowest endorsement count for a full fiscal year), H4P has gone from 1,389 endorsements to 2,436 endorsements (the highest fiscal year endorsement count) five years later. But if you want a definite potentially high growth area with high profits, H4P it is not.

    High endorsement volume/new entrants are a Catch 22. They are attracted by high volume and high profits. They will immediately drive up our endorsement volume. With this fiscal year as most likely the worst fiscal year in endorsement volume in over a decade, how do we draw these new entrants into the industry? Can we sell excuses? For the last five years, the answer has been no.

    It would be good news if the source of about 20% of our endorsement volume came from the financial planning community with high UPBs at closing. The trouble is with their low UPBs at closing. That means that if those percentages hold true, 10,000 out of this fiscal year’s approximate 50,000 endorsements will have less than 30% of their principal limits taken at closing. To draw high endorsement/new entrants, we will have to sell tails as a substantial source of deferred income free of most costs related to origination. That could be quite a chore.

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